Lightbridge Corporation (LTBR) Q3 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Lightbridge Corporation 2019 Third Quarter Earnings and Business Update Call. After the presentation, there will be a question-and-answer session. [Operator Instructions] At this time, it's my pleasure to turn the floor over to Mr. David Waldman, Investor Relations for Lightbridge. Sir, the floor is yours.

Thank you, Tom. Good afternoon and welcome to Lightbridge's Third Quarter 2019 Business Update Conference Call. The company's press release was distributed after the market closed on Tuesday and can be viewed on the Investor Relations page of the Lightbridge website at www.ltbridge.com. If anyone has questions after the call, you may contact Investor Relations at 1 (855) 379-9900. Seth Grae, our Chief Executive Officer, will lead today's call. In addition, the following executives are available to answer your questions. Larry Goldman, Chief Financial Officer; Jim Malone, Senior Vice President and Chief Nuclear Fuel Development Officer; Andrey Mushakov, Executive Vice President for Nuclear Operations; Jim Fornof, Vice President for Program Management; and Barbara Kanakry, Controller. Today's presentation includes forward-looking statements about the company's competitive position and product and service offerings. During today's call, words such as expect, anticipate, believe and intend will be used in our discussion of goals or events in the future. This presentation is based on current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from such estimates. These and other risks are set forth in more detail in Lightbridge's filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements, whether as a result of new developments or otherwise. You can participate in today's call 2 ways. You may submit questions for management in writing to ir@ltbridge.com. If you have already submitted a question, we thank you. You can also submit them at any time during the prepared remarks or during the Q&A period. In addition, after the prepared remarks, telephone lines will be open for live questions. Now here is Lightbridge's CEO, Seth Grae. Please go ahead, Seth.

Thank you, David. Good afternoon, everyone. This quarter, we achieved several major milestones, including demonstration of the high-temperature co-extrusion of 12 foot, Lightbridge Fuel rods using surrogate material for commercial scale nuclear reactors. We also demonstrated the process to produce fuel rods at a length designed for small modular reactors. I'll talk in more detail about this in a moment as well as other meaningful developments of the company. But first, let me turn the call over to Andrew Mushakov, Executive VP for Nuclear Operations, who will review the work we're doing on the fabrication of our fuel and the reasons why these activities are important. Andrey?

Thank you, Seth. We recently completed the following initiatives. First, as Seth mentioned, we demonstrated the co-extrusion manufacturing process using surrogate materials for 12-foot commercial length fuel rods for large light water reactors as well as 6 -foot rods for small modular reactors. The surrogate materials are designed to simulate the flow stresses, temperatures and extrusion pressures expected in the manufacture of the Lightbridge Fuel rods utilizing a uranium-zirconium alloy. Second, we define the lead test rod high-level design requirements. This is a key input for the technical scope of a lead test rod contract with a host utility. Third, we completed critical heat flux model in evaluation of the lead test rod. Critical heat flux is a key element of thermal-hydraulic design and safety evaluations. Fourth, we completed neutronics analysis of baseline fuel assembly behavior. This is a necessary step before a neutronics analysis of the entire core can be performed. Looking ahead the physical samples from the surrogate rod demonstration will be used for further optimization of the manufacturing process. Back to you, Seth.

Thanks, Andrey. The interest and support for Lightbridge Fuel from within the industry continues to grow. It is clear that current uranium dioxide fuel used in current reactors is at its limits. The current fuels cannot provide the power uprates or longer fuel cycles required to compete and win against natural gas. And while the accident tolerant fuels being discussed do provide benefits, they do not offer increased power, longer fuel cycles or the improved operating economics, the utility desire. Our fuel can offer these benefits, not only to the existing and planned light water reactors, but also small modular reactors being developed. Similarly, there are other advanced reactor designs being developed, but these won't be commercialized at scale for decades. Even these reactors will require high assay, low enriched uranium, metallization and licensing approval. Our fuel is leading the way towards that future. In addition to the growing interest and support from within the industry, we continue to see increased governmental support. First, DOE has made the largest test reactor in the United States, the advanced test reactor at Idaho National Lab into a user facility available to industry. Second, DOE has reopened the Transient Test Reactor facility or TREAT at Idaho National Laboratory, which is unique in the world and can allow Lightbridge to demonstrate how our fuel performs in worst-case accident scenarios. And third, DOE is making its stockpile high assay, low-enriched uranium, known as HALEU, available to advanced nuclear technology companies like Lightbridge and is starting programs to produce new supplies of HALEU for the industry. At the same time, new legislation supporting development of advanced nuclear technology is being considered in Congress. A few examples of the new legislation being considered include the following: First, the Nuclear Energy Leadership Act. This is a bill to direct the Secretary of Energy to establish advanced nuclear goals, provide for a versatile reactor-based fast neutron source and make available HALEU for research, development and demonstration of advanced nuclear reactor concepts. Second is the advanced Nuclear Fuel Availability Act. This would require the Secretary of Energy to establish and carry out a program to support the availability of HALEU for domestic commercial use and for research and development programs like Lightbridge's. Third is the Nuclear Energy Renewal Act of 2019. This is a bill to support licensing and relicensing of certain nuclear facilities and nuclear energy research, demonstration and development. And finally, fourth, is the Nuclear Powers America Act of 2019. This would provide for an investment tax credit related to the production of electricity from nuclear energy. We want to thank Senator Lisa Murkowski and others on The Hill who are promoting these efforts for advanced nuclear technologies. Turning back now to our strategic initiatives. Let me take a moment to discuss in more detail the recent demonstrations of our high-temperature co-extrusion process. The surrogate materials for both the commercial length rods and rods designed for small modular reactors were selected to simulate the behavior of the uranium-zirconium fuel alloy during manufacturing. These rods will undergo finishing operations. Upon completion of the finishing operations, some of the rods will be available for public display while others will be destructively characterized in order to optimize the co-extrusion process. We are also working towards finalizing a definitive agreement with new scale power, which we believe will help optimize their advanced nuclear reactor design. We plan to develop research and testing programs in order to explore the application of our nuclear fuel technology, which is well suited for new scales, natural circulation design in its small modular reactor. Our advanced fuel design is expected to increase core performance, extend core life, reduce the frequency of refueling outages and offer a reduced levelized cost of electricity. We are also advancing the process to solidify our collaboration goals with a major U.S. commercial nuclear power plant operator. We will announce news when we have it. While we've remained focused on advancing our fuel, in the coming weeks, we expect to begin a small consulting contract, under which we would provide nuclear regulatory licensing advice to an overseas nuclear regulatory authority. We believe this work will further validate our unique expertise and reputation within the industry. We also continue to expand our intellectual property portfolio, which is central to our strategy as we advance towards commercialization. In October, the Korean Intellectual Property Office awarded us a notice of patent grant for a divisional patent related to one of the embodiments of our fuel assembly design incorporating metallic fuel rods. This latest patent in South Korea further expands the broad global patent protection already surrounding our fuel design. Korea is an important market for our fuel with 24 nuclear reactors that provide about 1/3 of South Korea's electricity. Our technology is patented in major markets around the world, including the U.S., Europe, China, Russia and other key markets, which we believe will enable our fuel to far surpass the competition using see the economic and other benefits. In addition to the inherent economic and safety benefits, our fuel enables longer operating cycles, which is key to extending the life of existing plants, both in the United States and internationally. We believe that our strong patent portfolio will help establish and sustain our leadership in key global markets. The market for pressurized water reactors, boiling water reactors and pressurized heavy water reactors, includes over 350 reactors worldwide. The average annual fuel spent per reactor per year is approximately $50 million, which we estimate equates to a $20 billion addressable global market. We are encouraged by industry feedback to our fuel due to the fact that we uniquely offer nuclear plant operators an advanced fuel that provides a compelling value proposition and addresses key challenges facing the industry. On a separate note, we regret that we had to resort to implementing a reverse stock split to retain our NASDAQ listing. We wanted to avoid the reverse stock split. But we had no better alternative to meet the timing requirements of the NASDAQ. We believe maintaining the NASDAQ listing is important to Lightbridge and its stakeholders. Overall, we remain encouraged by the outlook for the business, and our balance sheet remains strong, with approximately $20 million in cash and no long-term debt. We have an at the market or ATM financing facility that we can use opportunistically to raise capital. We have not used it since July since we have not regarded this to be an opportunistic time. We continue building awareness and receiving positive feedback for our technology at important nuclear power industry events as well as within the media. We have an important event coming up next week. On November 14, we will participate in the International Framework for Nuclear Energy Cooperation conference at the White House. The topic of this event is bringing the world SMRs, small modular reactors and advanced nuclear. Event will be hosted by U.S. Secretary of Energy, Rick Perry and will include 22 energy ministers from around the world. The event will address the future of nuclear energy and will include the near-term adoption of small modular reactors. Their role in solving global problems, forward-thinking financing, revolutionizing the regulatory environment and innovative applications for clean energy systems. This past quarter, executives from Lightbridge, participated in governmental and private events on the future of nuclear energy. In October, I was a guest on Bloomberg Radio, discussing nuclear power issues in the news and our advanced metallic nuclear fuel technology. You can find the interview on our website at ltbridge.com. On October 21, Jim Malone, participated in the U.S.-EU high-level industrial forum on small modular reactors in Brussels, Belgium. The invitation-only event hosted by the European Commission and U.S. Department of Energy featured both light water and advanced reactor technologies. On October 15, I spoke at an event at the Embassy of France in Washington, D.C., co-hosted by the Embassy and the Washington, D.C. chapter of Women in Nuclear. The event was entitled A Future Together: Nuclear Energy in France and America, where I discussed recent milestones reached in the development of Lightbridge fuel as examples of French and American cooperation. The same day, I participated in The Nuclear Energy and National Security Coalition roundtable held at the Atlantic Council in Washington, DC. I spoke during a panel on the role of innovation in the civilian and military nuclear energy sectors. And on September 23, I hosted the opening plenary session of the Global Top Fuel 2019 Conference in Seattle, Washington, where I discussed the role of nuclear power in addressing climate change and nuclear fuel market trends, including advanced nuclear fuel technology. I was happy to share time on that panel with Framatome Inc. CEO, Gary Mignogna. So to wrap up, we have surrounded ourselves with the leading players in the industry. We are in discussions with new scale to advance our fuel for small modular reactors. We expect to finalize a consulting agreement with a premier entity overseas. We anticipate the patience and support of our -- we appreciate the patience and support of our investors. We look forward to providing further update in the weeks and months ahead. Now I'll turn the call over to Larry Goldman, our Chief Financial Officer, to go over with you select financial information from the third quarter.

Thank you, Seth, and good afternoon, everyone. For information regarding our third quarter 2019 financial results and disclosures, please refer to our earnings release and third quarter filing 10-Q that we filed at the close of market last Tuesday. Our balance sheet remains strong, with a working capital surplus at September 30, 2019, was $19.6 million. We ended this quarter with $20.6 million in cash and cash equivalents compared to $24.6 million at December 31, 2018, a $4 million net decrease in cash and cash equivalents at September 30, 2019. Cash used in our operating activities for the 9 months ended September 30, 2019, was approximately $4.1 million; and cash used in our investing activities, including our equity investment in our Enfission JV and our patent filing costs was approximately $3.7 million. This cash outflow was partially offset by net proceeds from the sale of approximately $3.8 million of our common stock for the 9 months ended September 30, 2019. Our total R&D spend for the quarter, including our share of the loss reported by Enfission recorded under the equity method of accounting totaled approximately $1.3 million. This compares to approximately $2.6 million of total R&D spend for the third quarter of 2018. This was due to reduced research and development expenses at Enfission. In October 2019, Enfission incurred approximately $130,000 in total R&D expenses. In support of our long-term business plan and future financing sources with respect to our fuel development, we anticipate creating strategic alliances as well as obtaining cost-sharing contributions by receiving additional funding from others in order to help fund our future R&D milestones leading to the commercialization of our fuel. On a final note, I am pleased to report that on November 4, we received written notification from the NASDAQ listing qualifications staff indicating that we regained compliance with the minimum bid price requirement for continued listing on the NASDAQ Capital Market. I'll now turn the call over to Barbara Kanakry, our Controller, who will go over some select P&L financial information for the third quarter of 2019.

Thank you, Larry. Total corporate research and development expenses, not including R&D expenses for our Enfission JV for the third quarter of 2019 were $0.8 million compared to $0.9 million for the third quarter of 2018. Research and development expenses consist primarily of employee compensation and related fringe benefits and allocable overhead costs related to the research and development of our fuel. General and administrative expenses for the third quarter of 2019 were $1.5 million compared to $1.9 million for the third quarter of 2018. There was a decrease in stock-based compensation of approximately $0.3 million and a decrease in professional fees of approximately $0.2 million, which was offset by an increase in employee compensation and employee benefits of approximately $0.1 million. Other operating expenses were $0.3 million for the third quarter of 2019 compared to $1.5 million of other operating expenses in the third quarter of 2018. Consisting of the equity in loss from our Enfission joint venture of $0.5 million, which consisted primarily of research and development expenses, offset by our income from the research and development support we provided to Enfission of $0.2 million. Now over to you, Seth.

Thank you, Barbara. I'd like to open the call to your questions. We will pause while the operator, Tom, reviews the procedure for asking live questions and then we'll move immediately into live questions, move immediately into questions that have been sent in by e-mails.

[Operator Instructions] And we do have a question from [ Nicole Kaufmann ] with Blackbridge Capital.

First, I'd like to say congratulations on the progress you're making. I do have a few questions. My first question is, when can we expect to see the fuel rods that were extruded, I apologize, with surrogate materials?

Well, the surrogate rods have been extruded and will undergo finishing operations, including surface cleaning, polishing, straightening. These are standard processes for fuel rod manufacturing in the nuclear power industry. Once the finishing operations are complete, we will be able to display the finished surrogate rods. We expect to be able to show a physical rod and photographs of it next month.

Great. My next question is, how does your Lightbridge Fuel compare to the accident tolerant fuels. And a follow-up to that will be -- will the Lightbridge Fuel work in all small modular reactors?

Right. And Jim Malone, do you want to take those?

Yes, I'll take that one. The Lightbridge Fuel enables longer cycles and higher burnouts than the accident tolerance fuels. The Lightbridge Fuel works in all light water reactors, including small modular reactors. So basically, as long as a small modular reactors' water cool with our fuel will work in it. And we expect that a main difference between our fuel and the accident tolerant fuels are the tremendous economic advantages that our fuel brings. And I'll also mention that while we're waiting for live questions, David Waldman, who is with Crescendo Communications, which handles our Investor Relations, can also proceed with questions we received via e-mail.

Great. It looks like we have another live question teeing up. So let's take that and then we'll go to some of the pre-submitted questions.

Sure. Tom?

[Operator Instructions]

It looks we dropped. So let me go to some of the pre-submitted questions. The first one we have is in the queue, you mentioned you may consider other plans -- you may consider other plans to fund operations, including additional funding through new relationships to help fund future research and development costs. Can you please clarify what this means?

Yes. As we've previously stated, we're continuously exploring non-dilutive funding opportunities such as government grants, cost sharing and/or other funding support from prospective customers and cash and non-cash contributions from other development partners, those are our main ways. And as we said, we also expect to start in the coming weeks some work on a consulting project with a nuclear regulatory authority overseas that will bring in some revenue.

Great. And it does look like we have another call teeing up.

Tom, is there another call?

Okay. In the meantime, let me proceed with the next question. Can you clarify why you are forming Enfission Europe?

Yes. Yes, we're happy to discuss that. Basically, what we're exploring with Framatome is the possibility of forming a European Union subsidiary of Enfission that we're tentatively calling Enfission Europe. We're evaluating whether this proposed structure could be more efficient from an intellectual property and transfer pricing perspective. To access resources we'd like to access in Europe and to help reach markets there, ultimately. We'll provide further updates as we complete our discussions with Framatome, but this is something we're in active discussions with Framatome, and we'll make announcements when we have them.

And our next question, are you planning to collaborate with other partners. For the fuel types, not part of Enfission, such as BWRs and Russian VVERs?

Yes. And Jim Malone, do you want to take this?

For sure. First, I'd like to clarify that boiling water reactors fall within the domain of Enfission. That's an important thing to keep in mind. Reactor types that are excluded from the scope of Enfission, include the Russian VVERs and heavy water reactors such as CANDUs in Canada or other countries like Romania and South Korea. Our current focus is on the Genesis Project with Enfission, which is focused on the 17 by 17, fuel assembly design for pressurized water reactors. We are not now exploring opportunities to develop and commercialize our metallic fuel technology in these other markets.

Great. Our next question is, when will the testing and irradiation of fuel samples in a test reactor start? Also, can you shed some light on the treat reactor experiments? Can you provide an approximate time frame for the treat reactor testing, please? Broadly speaking, would it be 2023 or in 2024?

Right, Jim Fornof has been leading our work with Idaho National Laboratory. And Jim, do you want to take this?

Yes. Thanks, Seth. Yes. Our current plan is to use the advanced test reactor or ATR. As Seth mentioned in his prepared comments, at the Idaho National Lab for sample irradiation. Beginning next year in 2020, we expect to identify some potential sources of high assay LEU at the lab, complete the actual design of the experiment in the ATR and begin fabrication of the physical fuel samples. We plan to explore the use of INL's innovative Fission Accelerated Steady-state Testing are also referred to as FAST. This is a methodology that increases earn up accumulation in the sample and shortens in reactor time. Irradiation in the ATR itself and subsequent post-irradiation testing of the fuel samples will depend upon the space availability in the ATR reactor. Regarding the transient reactor test facility, also known as TREAT at INL. This reactor is typically used for short high-power transient experiments in order to model accidents, such as rapid reactivity insertion. We've had some preliminary discussions with the INL staff regarding potential future experiments, and we'll provide updates on these plans as they solidify.

Our next question is Lightbridge's primary source of funding has been the ATM facility given the depressed nature of the stock's valuation, does management have any other sources of funding lined up for the near future?

Yes. And as I said, we have not used that facility since July because we use it opportunistically. We don't regard this as an opportunistic time. I guess, Larry, if you want to add anything to that?

Yes, Seth. We are exploring other sources of financing, and we will provide further updates as appropriate.

Okay. Thanks. We'll go to a live question.

We'll go next to Harold Weber with Aegis Capital.

Can you give us a little bit of an update as far as what's going on with the domestic commercial utility companies? And where we're -- where that's going forward with us? And when are we going to be able to say something about our cooperative joint ventures that we're doing? And when we might see some actual commitments?

Yes. Harold, thank you for the question. Yes. As we said earlier in the call, we have been making technical progress that is necessary toward that contract and we've also had technical meetings between Enfission and the utility. We do know what the utility is. We know which nuclear power plant, which specific reactor it is. We will make announcements when we have them. I do expect they will be before the end of the year. But unfortunately, at the moment, this is very confidential. It's very sensitive, both with Framatome and with the utility. And I'll just say we will make announcements when we have news.

In regard to the testing, okay, you're saying that when it's available, I don't know what that means. Can you be -- can you focus on that somewhat more? Okay, that doesn't tell us anything. This is -- we should have some sort of a time line that we can look to.

I said that we expect to announce this before the end of the year. We do have a very specific time lines with this utility that we'll be announcing that are in accordance with our public time lines from the company.

I'm referring to the testing at the lab.

Yes. The testing at the lab, this is...

Reactor.

Yes, it's a function of the availability of other clients and particularly some of the Department of Defense clients that the lab has. It can -- they also -- the reactor has an outage coming up, scheduled in 2021. The schedule for that hasn't been set yet, but it's a period of time when we won't have access to the reactor. So that's the reason for the uncertainty at this point.

Yes. So what are we doing to try and accelerate that to our benefit?

Well, as I mentioned, we're using this methodology called FAST, which is a way to use the reactor to get accumulated burn up in a much faster time frame. So once we get into the reactor, our time in the core will be much shorter if we can pull that off. It's a program that INO has had for quite a while. They haven't really used it a whole lot, but I think it's a big opportunity for us to shorten the testing cycle.

Is that going to be satisfactory for the NRC and the Energy Commission and those guys?

I'm not completely clear on your question, but it's the basic thermophysical properties that we'll be measuring in this experiment are required for the -- for the input into the final design and for some of the accident analysis that the NRC would want to see.

So this is -- these metrics will meet the requirements that they are asking for.

Yes, if you could clarify a specific requirement you're referring to, I think it will be more...

well, in general, that's how what the NRC?

In general, yes. This would provide the inputs that the NRC typically would look for.

What the NRC will look for will be up to the NRC in the end. We believe this meets what the NRC will look for. We've been meeting with the NRC. And we will further refine the plan based on what the NRC as an independent regulator determines as we go along.

Our next question is, there's been some disappointing news this year. What can management do to lift shareholder value?

Yes. Well, while there's been disappointing news this year, and we certainly recognize that there has been some, we've also completed some major milestones we had set for 2019. As we reported a couple of months ago, we successfully demonstrated a co-extrusion manufacturing process for full length rod using surrogate materials for application, the current and future generation of light water reactors, including small modular reactors. We'll continue to focus on making progress on our fuel development milestones that we believe will drive long-term shareholder value. We know we haven't had a lot of news for you lately. We're having a lot of good news for you lately. We are working very hard to turn that around for you.

Okay. Our next question, why hasn't Lightbridge management purchased any shares in the open market in 2019?

As disclosed in our proxy filings, a significant portion of Lightbridge management's compensation comes in stock options that have value only if Lightbridge's stock price rises, substantially above the stock price from the date of the option grants, any additional purchases of Lightbridge stock on the open market by management are publicly disclosed and you'll see those form [fours] periodically as, just, I believe, just that about every member of management has invested in the company and has bought stock in the open market at times.

Okay. Our next question, have you received any feedback from INL regarding the GAIN Voucher? What are the next steps in regard to the PERT Analysis?

Jim?

Yes. As a matter of fact, we have Framatome, which just recently completed their contract with the DOE GAIN office in October. They had some successful negotiations related to some IP terms, including Lightbridge patents. The next step is to develop the drafts of the failure modes and FX analysis, which is known as FMEA. And then the phenomenon identification and ranking table where PERT as the question refers to. This will be followed by a collaborative review and comment conducted by subject matter experts at the INL, at Idaho National Labs, and these are expected to kick off in the coming months and should be completed within a year and that's the requirement under the GAIN Voucher.

Okay. And we have time for one more question that was submitted, is Lightbridge Fuel used anywhere in the world? And if it is, where is it being manufactured?

The Lightbridge Fuel is not being used anywhere in the world right now. Obviously, we're still in the development phase. So it would be premature for us to have the field deployed.

Right. And we're working with Framatome toward developing our pilot-scale nuclear fuel fabrication facility at Richland in Washington that we then plan to develop into a larger commercial-scale manufacturing facility.

Great. Thank you. I will turn the call back to management for closing remarks.

Well, thank you. Thank you, David, and thank you, Tom. I'd like to thank all our investors. We look forward to providing additional updates in the near future. In the meantime, our lines are always open at ir@ltbridge.com and 1 (855) 379-9900. Thank you. Goodbye.

Ladies and gentlemen, this does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and have a great day.